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What kind of shock was it? Regional integration and structural change in Germany after unification

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  • Burda, Michael C.

Abstract

Eastern Germany's recovery from its unification shock has been accompanied by deep structural change and a mobility race--a regional integration process involving both capital deepening and labor thinning (outmigration). A constant-returns neoclassical model of economic integration is proposed to account for these facts. Adjustment costs and initial conditions determine dynamics and steady state regional distribution of production factors. The model also explains persistent wage and capital rate-of-return differentials along the equilibrium path. Under these conditions, observed factor price differentials contain information on those adjustment costs. Journal of Comparative Economics 36 (4) (2008) 557-567.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 36 (2008)
Issue (Month): 4 (December)
Pages: 557-567

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Handle: RePEc:eee:jcecon:v:36:y:2008:i:4:p:557-567

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Web page: http://www.elsevier.com/locate/inca/622864

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Keywords: German reunification Regional integration Costs of adjustment Capital mobility Migration;

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References

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  1. Barry Eichengreen., 1990. "One Money for Europe? Lessons from the US Currency Union," Economics Working Papers 90-132, University of California at Berkeley.
  2. Ronald Bachmann & Michael C. Burda, 2007. "Sectoral Transformation, Turbulence, and Labor Market Dynamics in Germany," Ruhr Economic Papers 0005, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
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  7. Lilien, David M, 1982. "Sectoral Shifts and Cyclical Unemployment," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 777-93, August.
  8. Michael C. Burda, 2006. "Factor Reallocation in Eastern Germany after Reunification," American Economic Review, American Economic Association, vol. 96(2), pages 368-374, May.
  9. Hans-Werner Sinn, 1999. "EU Enlargement, Migration, and Lessons from German Unification," CESifo Working Paper Series 182, CESifo Group Munich.
  10. Michael C. Burda & Jennifer Hunt, 2001. "From Reunification to Economic Integration: Productivity and the Labor Market in Eastern Germany," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(2), pages 1-92.
  11. Nicola Fuchs-Schuendeln, 2005. "Adjustment to a Large Shock - Do Households Smooth Low Frequency Consumption?," 2005 Meeting Papers 517, Society for Economic Dynamics.
  12. Dennis J. Snower & Christian Merkl, 2006. "The Caring Hand that Cripples: The East German Labor Market After Reunification (Detailed Version)," Kiel Working Papers 1263, Kiel Institute for the World Economy.
  13. John Driffill & Marcus Miller, 2003. "No Credit for Transition: European Institutions and German Unemployment," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(1), pages 41-60, February.
  14. Richard Rogerson, 2005. "Sectoral Shocks, Specific Human Capital and Displaced Workers," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 89-105, January.
  15. Merkl, Christian & Snower, Dennis J., 2006. "The Caring Hand that Cripples: The East German Labour Market after Reunification," CEPR Discussion Papers 5656, C.E.P.R. Discussion Papers.
  16. Andrew B. Abel, 2002. "On the Invariance of the Rate of Return to Convex Adjustment Costs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(3), pages 586-601, July.
  17. George A. Akerlof & Andrew K. Rose & Janet L. Yellen & Helga Hessenius, 1991. "East Germany in from the Cold: The Economic Aftermath of Currency Union," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 1-106.
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Citations

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Cited by:
  1. Sebastian Vollmer & Hajo Holzmann & Florian Ketterer & Stephan Klasen, 2013. "Distribution dynamics of regional GDP per employee in unified Germany," Empirical Economics, Springer, vol. 44(2), pages 491-509, April.
  2. Robert Orlowski & Regina T. Riphahn, 2009. "The East German Wage Structure after Transition," Working Papers 073, Bavarian Graduate Program in Economics (BGPE).
  3. Andreas Schäfer & Thomas Steger, 2010. "History, Expectations, and Public Policy: Economic Development in Eastern Germany," CESifo Working Paper Series 3184, CESifo Group Munich.
  4. Harald Uhlig, 2007. "Regional Labor Markets, Network Externalities and Migration: The Case of German Reunification," Kiel Working Papers 1311, Kiel Institute for the World Economy.

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